The Plaza Accord (1985): U.S.–Japan Agreement and Its Global Impact

The Plaza Accord, signed September 22, 1985, at New York's Plaza Hotel by the U.S., Japan, West Germany, France, and the UK, aimed to correct massive trade imbalances by depreciating the overvalued U.S. dollar against the Japanese yen and German mark.

Key Outcomes

1. Currency Realignment: The yen doubled in value vs. the dollar within two years (¥240/$ → ¥120/$), making Japanese exports costlier and U.S. goods more competitive.
2. Trade Rebalancing: U.S. exports surged; Japan's trade surplus narrowed.
3. Japanese Asset Bubble: Cheap credit fueled speculative bubbles in stocks and real estate (burst 1991).
4. Policy Coordination Precedent: Demonstrated G5/G7 cooperation on exchange rates.
5. Long-Term Lessons: Currency intervention works but requires structural reforms to avoid unintended consequences.

The Accord remains a landmark in international monetary cooperation.